The NASPP Blog

Back in August, I blogged about Senator Levin’s most recent efforts attacking the tax deduction companies claim for stock options (“Senator Levin, Still Trying,” August 9, 2011), then in September, I blogged about a study on CEOs that made more than their companies paid in taxes, which was clearly aimed at supporting Senator Levin’s position (“Corp Taxes and CEO Compensation,” September 16, 2011). Now, with the news that Facebook may be entitled to a significant tax deduction as a result of stock options awarded to founder, Mark Zuckerberg, Senator Levin gave a speech in Congress about the evils of tax deductions for stock options and again introduced legislation to limit the company tax deduction (“Senator Levin Calls for Congress to Close ‘Facebook’ Tax Loophole,” by Carl Franzen, TPN, March 1, 2012).

The Rebuttal to Senator Levin
When I read this stuff, I get so frustrated I lose the ability to speak coherently and just sputter out half-sentences of outrage. Luckily, however, the folks that write the Executive Pay Matters blog at Towers Perrin are much more articulate than I am. On January 23, James Scannella pointed out a number of weaknesses in Senator Levin’s arguments (“Is It Time for a Change in the Tax Treatment of Stock Options“). A few highlights from the blog:

1. The company is only getting a tax deduction because the executive is paying tax on the same income–making the transaction, at worst, tax neutral for the U.S. government. It’s even possible that the executive is paying tax at a higher rate than the company would.
2. It isn’t necessary for compensation to be paid in cash for it to result in a tax deduction; there are other instances where non-cash compensation results in a tax deduction that no one seems outraged about.
3. It also isn’t uncommon for the accounting expense for compensation to be misaligned with the tax expense. The two sets of rules serve very different purposes. This, in and of itself, isn’t a argument that the tax deduction is wrong or a loophole.

Scannella also points out that, in Towers Watson’s experience, decisions regarding how and how much to pay executives are rarely driven by the timing or amount of the company’s tax deduction. Just as ASC 718 wasn’t the end of stock compensation, this legislation probably wouldn’t be either. And it could have the effect of steering more companies towards service-based restricted stock, a result that shareholders probably wouldn’t be too keen on.

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NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so we keep an ongoing “to do” list for you here in our blog. 

– Barbara